Maxim Power Corp. (TSX: MXG) said in a Nov. 10 quarterly earnings report that the third quarter of this year is the seventh consecutive quarter that it has breached at least one financial covenant related to its revolving credit facility.
The independent power producer said it has been able to procure waivers at each reporting date for the financial covenant breaches and has extended the maturity of its credit facility during this time period to Dec. 31, 2016. At Sept. 30, 2016, it had cash of C$4.2 million and a working capital surplus from continuing operations of C$3.0 million. However, in the event that it cannot realize the pending sale of its France segment it would have had a working capital deficit of C$2.6 million.
The company added: “In these circumstances, management believes the going concern assumption is appropriate for these consolidated financial statements but is contingent upon closing the sale of the France operating segment, a further extension of its credit facility, raising of sufficient capital or the sale of other assets in the future, as required. There can be no assurance that the steps management is taking will be successful. This assumption will be reviewed on an ongoing basis by management and the Board of Directors.”
On Sept. 13, MAXIM announced that it has an agreement to sell 100% of its ownership interest in COMAX France S.A.S. and its parent MAXIM Power B.V. to Vine Luxembourg SARL, an affiliate of Basalt Infrastructure Partners LP.
MAXIM is currently pursuing various asset sales, including the sale of the France operating segment. The proceeds from these will in part be used to repay any draws on the revolving credit facility and cash collateralize existing letters of credit under the Canadian credit facility, thereby mitigating the risk of covenant default and decreasing the corporation’s debt service charges. In the event the sales do not proceed in a timely fashion, management is also actively pursuing financing options with current and prospective lenders which both would, in management’s view, enable the corporation to achieve its business plans. Other than the sale of the France operating segment, no agreements have been reached as of Nov. 10 and there can be no assurance that such agreements will be reached.
The corporation’s outlook is significantly impacted by Alberta electricity and fuel prices. Alberta electricity prices are a key revenue determinant for MAXIM’s 150-MW, coal-fired Milner Unit 1 (M1). As a result of record low Alberta power prices, which have undermined profitability for a prolonged period, the corporation had made the decision to dial down operations at M1 and temporarily suspend generation on March 23, 2016. On June 29, 2016, it resumed the generation of electricity at M1 as it was determined that it was economic to do so through a fixed price firm financial swap agreement. The swap agreements end in March 2017. As at the date of Nov. 10, the corporation has sold 100 MW of fixed price Alberta power until the end of February 2017 and a further 95 MW of fixed price Alberta power in March 2017.
MAXIM is continuing its independent power producer strategy through the advancement of its development initiatives. The corporation maintains optionality for all of the development initiatives in order to maximize shareholder value including outright sale, joint venture, build and operate or pace development process to hold as future opportunity. The projects are:
- Buffalo Atlee – MAXIM acquired the Buffalo Atlee Power Project, situated near Brooks, Alberta, through an amalgamation with EarthFirst Canada Inc. This project has the potential for development of up to 200 MW of wind generation capacity in multiple phases. The first phase consists of 33 MW and MAXIM anticipates this capacity will participate in the Alberta Electric System Operator‘s (AESO) renewable electricity program expected to commence, with expressions of interest, in the first quarter of 2017. The addition of wind generation to MAXIM’s existing portfolio of assets would diversify further potential changes to MAXIM’s generation fuel types and provide the potential to offset the impact of potential provincial emissions legislation in Alberta, once enacted.
- Milner Unit 3 (M3) – MAXIM has regulatory approval to increase generating capacity at the M1 site by building M3, which will be comprised of two gas-fired turbines located next to M1 and is a cost-effective solution to transition M1 from coal to natural gas. M3 will utilize existing M1 assets including, but not limited to, its boiler, steam turbine, generator, water license, as well as electrical and gas interconnections. The development of M3 will also result in a reduction to total greenhouse gases and air emissions from current levels. Exhaust energy from M3’s gas turbines will be converted to steam and utilized to generate electricity in the existing M1 steam turbine, displacing coal-sourced steam. Before giving effect to the development of M2, M3 will increase the nameplate capacity at the Milner site from 150 MW to 236 MW. MAXIM has received regulatory approval to construct and operate M3. Construction of the facility is pending regulatory certainty in Alberta, improved prices in the Alberta power market and satisfactory commercial arrangements. Notable is that Maxim applied Nov. 2 with the Alberta Utilities Commission for a three-year delay in the construction of M3. Maxim is requesting that the commission alter the construction completion deadline from Dec. 31, 2016, to Dec. 31, 2019.
- Milner Unit 2 (M2) – MAXIM has received regulatory approval to construct and operate M2, a 520-MW natural gas-fired combined-cycle facility. The M2 facility is to be located adjacent to the150-MW M1. Synergies with existing M1 infrastructure such as electrical interconnection, fuel delivery, water license and a skilled operations team, allow the M2 project to achieve a competitive advantage as compared to a greenfield development.
- SUMMIT – This is MAXIM’s metallurgical coal development initiative located north of Grande Cache, Alberta, that owns metallurgical coal leases for Mine 14 (M14) and Mine 16S (M16S). Current estimates for M14 are 18.9 million tonnes of low-mid volatile metallurgical coal reserves with a mine life of 17 years. M16S is located 30 kilometers northwest of M14 and represents 1,792 hectares or 29% of SUMMIT’s total area of coal leases. M14 is permitted for a run-of-mine production rate of up to 1,300,000 tonnes per year. MAXIM has also received approval from the Alberta Energy Regulator to construct and operate a Coal Beneficiation Plant. This Coal Beneficiation Plant, to be located on MAXIM’s existing M1 industrial complex, will bifurcate M14’s run-of-mine coal into an estimated annual production of 950,000 tonnes of high-quality, low-mid volatile and metallurgical coal for shipment to export markets. SUMMIT has all requisite government and regulatory approvals to construct and operate M14.
- Deerland – MAXIM has received regulatory approvals to construct and operate the Deerland peaking station, a 190-MW natural gas-fired facility. MAXIM has entered into agreements to secure firm natural gas transportation service for the Deerland peaking station. Construction is pending regulatory certainty in Alberta, improved prices in the Alberta power market and satisfactory commercial arrangements.
Based in Calgary, Alberta, MAXIM is an independent power producer that acquires or develops, owns and operates innovative and environmentally responsible power and power related projects. MAXIM currently owns and operates 39 power plants in Alberta, the United States and France, having 778 MW of electric generating capacity.